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Edited Transcript of 4751.T earnings conference call or presentation 22-Apr-20 7:00am GMT

Q2 2020 CyberAgent Inc Earnings Presentation

Tokyo Apr 28, 2020 (Thomson StreetEvents) -- Edited Transcript of CyberAgent Inc earnings conference call or presentation Wednesday, April 22, 2020 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Susumu Fujita

CyberAgent, Inc. - Co-Founder, CEO, President & Representative Director

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Presentation

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Unidentified Company Representative, [1]

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It is now time to start the earnings results announcement of CyberAgent for the second quarter of FY 2020 ending in September. We had planned to hold a briefing session for the second quarter at another venue, but in order to prevent the spread of novel coronavirus, we decided to do live webcast of announcement instead. If you have any questions, please contact our IR division. And also, for what will be explained during the earnings results announcement, please refer to the disclaimer as described.

Now our President, Susumu Fujita, will share the earnings results.

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Susumu Fujita, CyberAgent, Inc. - Co-Founder, CEO, President & Representative Director [2]

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Hello. I am Fujita, the President of CyberAgent. We end our fiscal year in the end of September. So this is the quarter -- the second quarter for us. This is going to be the first half earnings results for us.

Let's begin. First of all, for the second quarter, which is January to March for us, overall, this was a strong quarter. We were able to see that when we entered January. We had remained quite firm. For the sales, we grew by double-digit year-on-year.

And for each business, for Media Business, first of all, there was demand coming from home confinement that had a positive effect to us, and we have been able to bring up the user base significantly.

And for Ad Business, January to March period tends to be a good quarter. And on top of that, there are new clients that we have received, and we have paid attention to grow the billings with them and it was starting to bear fruit. So therefore, we had a solid growth for Ad Business for this quarter. However, we started to be impacted by COVID from March. And I believe that the effect of that will start to appear more in the third quarter.

And for Game Business, we had a series of anniversary titles, and the new titles had good start. So it was a good quarter in terms of Game Business.

This is the changes of the sales. As I said, we grew by double digit. We had hit the record high sales.

For OP, there's Ad and Game Business that thrived, and we have been able to grow significantly on a year-on-year basis as well.

For SG&A expenses, last year -- in the middle of last year, we ran what we call the downward revision campaign internally. And we decided to curtail the SG&A expenses, and it has come up little by little since then. The increase of promotion costs, there is a subsidiary called [Sirok], and then we have some ad spend for Abema. So it doesn't mean that we have increased the ad for another type of business.

And this is the number of employees. The total headcount remains to be quite stable. Every year, in April, we welcome new graduates. And we are going to have an increased number in the third quarter.

This is how the P&L looks like.

Here is the balance sheet. Because we are in this situation, cash deposits, I believe, will be an important indicator. We have roughly JPY 80 billion in cash deposits.

Here is the forecast. Well, in the beginning of this fiscal year, we created this forecast for FY 2020. And at that time, we didn't expect this COVID to impact us so significantly. But for this fiscal quarter, we have given a range to our OP forecast. And how does it look like in terms of progress rate? We have finished the first half. And as you can see here, our sales, we have achieved more than half. And for OP, it's 60 -- it's more than 60%. That's the progress rate so far. We have made it rather conservative, and it had a good effect, thankfully, and we didn't have to make a revision, and we are hoping to be able to achieve the forecast.

Going into Internet Ad, Game and Media, I'm going to talk about them one by one. For Internet Ad, for a long time, we have been able -- we have been revising structures. We have acquired more national clients in the course of years, and we have put importance of them so that we will be able to increase the billings that we do with them. When we entered into this fiscal year, that was starting to pay off, so there was a good mood. And when we entered into March, little by little, we started to see that the clients are placing in fewer number of ads, and that was mainly because of the impact by COVID. And we cannot be helped that we would also be impacted by that.

For OP, this is how it looks like. In the second quarter, which is inclusive of March, it tends to come up a little bit.

In summary, from January to March period, it was a solid quarter for us, but the impact of COVID was starting to appear from March, and it is spreading, it is expanding. And we're in the third quarter. Because we're in April, we cannot say anything about how the third quarter will look like. But for sure, in the ad industry, we are seeing slowdown. But we have shifted to work-from-home style internally to continue with our business. There's search engine and there's also ads that serve as the base, and we're not impacted too much in that area. But in case there are big campaigns that they were planning, it seems like the clients are stopping those planning of big campaigns.

Moving on to Game business. As I said earlier in the highlights, we had big anniversary titles in this quarter. And on top of that, the new titles that we launched had a good start. So we have been able to have very good sales. The new titles are namely KonoSuba: God's Blessing on this Wonderful World! We released this at the end of February. And we have been able to just look at the first month of the sales, and we -- our recent status is quite positive for that title. And there's also Granblue Fantasy, the package version that we have released, and we have been able to sell quite a lot of that as well.

This is the OP and how it's changed over time. We have been able to grow this without increasing the SG&A too much. So we have a solid number here. And this came out on February 27. This is KonoSuba. It's the new title for us. There are some cases recently where some titles have a good start, but it tends to slow down. But so far, it's going quite well. This is a collaboration that we have with KADOKAWA.

Going on to the anniversary titles, anniversary titles have drove our sales, and these are the big titles that celebrate an anniversary: Granblue Fantasy, and there's PRINCESS CONNECT! and BanG Dream! We celebrated anniversary of these titles in this quarter.

New upcoming titles. Just on the 17th of April, we released the Chinese version of PRINCESS CONNECT! We had a really good start for this one. And then there's NieR and UMA MUSUME, Shadowverse that are in the pipeline already. And we can be very hopeful for these new titles, and we are aiming to have yet more hits.

Moving on to Media Business. For Media Business, if you look at the sales, the increase of sales from Abema had driven this number. So it has increased significantly. And we have celebrated the fourth year, and we've been able to have organic growth. The number of downloads is really soaring. And this is the number of WAUs of Abema. As you can see here, people are staying at home and they are killing time on Abema. The demand is increasing, and I believe that the user base has increased by 20% to 30%, thanks to this demand. And we are in this situation, there is a high demand for news. For AbemaTV, we -- the viewers can increase -- we can increase the number of channels. We can increase the number of duration of programs as well. So when an important press conference starts, then we can air that instantly without cutting that with commercials. And when a breaking news comes up, we will be able to increase the number of channels instantly in order to address that.

We are amid this situation. We have rebranded AbemaTV to Abema. We've changed the name. And as a matter of fact, we had prepared this from 6 months ago. And AbemaTV, that's how it was called, but we don't want to confine ourselves just in the world of TV. We are going into the new time. There's on-demand multiservice streaming. We wanted to create something that was even more convenient for the users. So therefore, we decided to change the branding, the name of AbemaTV to Abema.

For Abema, we take on the hybrid model of linear and on-demand. There's news, sports that are streamed on an everyday basis. And we make these original episodes, and then they would shift automatically as our exclusive programs into on-demand archive. Linear is basically ad model, and on-demand is subscription model.

It's been 4 years since we launched Abema, and we have been quite buzzy with entertaining and really extreme edgy programs, and we're trying to have a brand image that Abema is entertaining and fun. We're really focused on creating fun and entertaining programs. So we are probably changing the mindset towards the production of programs right now. And there is a program that was aired on TV Asahi, and then we are streaming that as an on-demand service for this new drama called N (sic) [M]. We've had the record high viewership for that program, where the number of viewers is the highest to date, I should say.

The number of users, this was analyzed by App 8 (sic) [App Ape], which is a third-party analysis tool. Amazon Prime is really thriving in Japan. We're following them. However, when you just extract the teenagers and the 20s, our MAU is at the par level as Amazon Prime, and we are by far the high -- the most viewed compared to other players in the market. When we speak to foreign investors, they're quite surprised that to -- to find out that our level of -- the number of viewers is at the par level as Amazon Prime. They're quite surprised to hear that, so I decided to put this chart.

For Abema, there's advertisement model. And we have to really focus on contents that are produced by professionals, and we can have full control over the quality of the content. So advertising is very important. And at the same time, we have subscription models. It's a very unique hybrid of business model that we have. There's TVer, which is Internet version of TV, and there's Netflix and Amazon, that type of models, which is a replacement of rental video shop. We don't compete directly with any of them. We want to coexist with those players.

The number of subscribers is now 676,000, and we aim for 1 million within this calendar year. When you look at the recent status, we have made solid growth. The more we promote subscribers, the more conflict we would have with free content. Viewers may think that even though we claim that we can be viewed and enjoyed free of charge, they will be charged at the end. So therefore, we decided to not do so much promotion of subscription for Abema. But we decided to run a promotion of our subscription recently. And this -- as I said, this is a hybrid model of ad -- advertising and subscription.

We also put focus on peripheral businesses -- related businesses. There's the Keirin WinTicket that is growing exponentially. And people are staying at home right now and this has shown a very solid growth for us.

This is the material that I always use, and I believe that we are on track to achieve what we have envisioned. There's advertisement and there's subscription. And on top of these, we are monetizing with related businesses. And this is the vision that we have to increase our growth going forward.

And lastly, as a summary, we are still positioning Abema as a new medium- to long-term mainstay or pillar. For Media, we want to expand Abema and improve the monetization of Abema. And for Ad Business, we don't exactly know how this COVID will impact us in the future. We don't know whether it's going to be a temporal impact or not. But for sure, we are going to be impacted. But once this becomes better, I believe that we have already set in place a structure for us to further grow in the future. So that's exactly what we would like to do for Ad Business.

And for Game Business, we have new titles, and we have launched them, and we've made hits, and we've gained confidence in making hits among the new titles. And we also want to enhance the operation capability.

And this is the integrated report that we have announced last year, that's become very popular. It's on our website. If you are an investor, please take a look at this. And there's also an official line account. If you're investing or if you're interested or considering of investing in CyberAgent, please check out the line account as well.

Thank you very much. That's it from my side.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]